IMF cuts US 2014 growth forecast to 2.7%

WASHINGTON, USA – The International Monetary Fund (IMF) cut its US growth forecast for 2014 to 2.7% after 1.9% this year, saying growth is being held back by “excessively rapid and ill-designed” government spending cuts.

The government’s sequester cuts are taking up to 1.75 percentage points from this year’s growth potential, but the economy will rebound in 2014, the IMF said in its annual report on the United States.

Even so, growth next year will be less than the 3% the IMF previously forecast, due to the impact of the spending cuts and the weaker global economic environment.

“The automatic spending cuts not only exert a heavy toll on growth in the short term, but the indiscriminate reductions in education, science, and infrastructure spending could also reduce medium-term potential growth,” the IMF said.

More generally it said the US economic recovery is on track helped by the rebound in the housing market and improved corporate and household balance sheets.

It also credited the Federal Reserve’s stimulus program, which has held down interest rates at record lows.

To ensure the economy remains on track, the IMF urged the government to repeal the sequester cuts and adopt a “more balanced and gradual pace of fiscal consolidation.”

“A slower pace of deficit reduction would help the recovery at a time when monetary policy has limited room to support it further,” the Fund said. – Rappler.com